In 1962, through Buffett Partnership, Buffett began accumulating shares in a struggling New England textile mill called Berkshire Hathaway. The stock traded well below working capital — a textbook Graham "cigar butt," good for one last free puff.
In 1964, Berkshire's chief executive Seabury Stanton verbally agreed to buy Buffett out at $11.50 per share. But when the formal tender offer arrived, the price had been shaved to $11.375 — twelve and a half cents lower. Alice Schroeder, in The Snowball, captures the moment in detail: Buffett was furious. Instead of selling, he bought more, took control in May 1965, and fired Stanton.
This is the most-studied emotional decision of Buffett's career. A self-styled rationalist, stung by twelve and a half cents, anchored his capital in a textile mill that would decline for the next twenty years. In the 2010 shareholder letter, he wrote: "If I'd never bought Berkshire and put the same money into insurance instead, we'd be worth at least $200 billion more today. That's one expensive temper tantrum."
The lesson is not "don't act on impulse." It is what came next — how he turned the wreckage into a compounding platform. He used Berkshire as a shell, wound down the textile business and poured GEICO, See's Candies and Coca-Cola into the same corporate skeleton. The error became the vehicle. The best repair is rarely a return to the starting line; it is to begin again from wherever the error left you.
Sources: Alice Schroeder, The Snowball: Warren Buffett and the Business of Life (2008), Ch. 28; Berkshire Hathaway 2010 annual letter.On Friday afternoon, August 16, 1991, Salomon Brothers — in which Berkshire held a 12% stake — was exposed for a Treasury auction scandal. Trader Paul Mozer had repeatedly submitted illegal bids, including under fabricated customer names. The U.S. Treasury was about to strip Salomon of its primary-dealer status, effectively a corporate death sentence. That night, 60-year-old Buffett flew to New York and stepped in as interim chairman.
It is the only time Buffett ever truly ran an operating company. He disliked Wall Street culture, despised investment-banking pay packages, and had no taste for hands-on management. But he understood that if Salomon failed, the contagion would tear through the financial system — this was a firm with $150 billion in assets, transacting daily with every major central bank.
He did three things. First, he sent every employee a memo containing one line that became famous: "Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless." Second, he flew to Washington and personally persuaded an under-secretary of the Treasury — Jerome Powell, the future Fed chair — to suspend, rather than revoke, Salomon's status. Third, he slashed the bonus pool for the investment bankers by $110 million.
Nine months later he left. The firm survived. Roger Lowenstein, in his biography, summed up the experience: "Those nine months showed Buffett, viscerally, how fragile a culture is — that one trader's misconduct could threaten the livelihoods of eight thousand colleagues." From then on, Berkshire's first criterion in any acquisition was the honesty of the management.
Sources: Roger Lowenstein, Buffett: The Making of an American Capitalist (1995), Ch. 19; Buffett's testimony before the U.S. Congress, September 1991.Buffett's father, Howard Buffett — a four-term U.S. Congressman — taught him a single distinction as a child: the inner scorecard versus the outer scorecard. Schroeder calls this the key to understanding the man. He does not measure himself by what others see; he measures himself by what he sees.
The specifics: he still lives in the Omaha house he bought in 1958 for $31,500 (about $350,000 in today's dollars). He drives a used Cadillac. His breakfast is a $3.17 McDonald's order — though depending on the morning's market mood, he might downgrade to $2.95 or splurge on $3.95 (as the HBO documentary Becoming Warren Buffett records). His office holds no computer and no calculator; just an old telephone and a stack of annual reports.
He calls his calendar "the gift I give myself." Ninety percent of his time goes to reading — five or six hours a day. The rest is bridge (often online against Bill Gates) and Coca-Cola (five cans a day). He does not take meetings, does not do email, does not use a phone for work. Schroeder describes him as "a man on a kind of leave from time itself."
His deepest habit may be the "twenty-hole punch card" rule: imagine you can make only twenty investment decisions in your entire life. Every move uses a hole. When the holes are gone, you stop. That constraint forces you to act only on convictions that matter. It is not just an investment philosophy; it is a life philosophy. In sixty years, he has truly bet on roughly a dozen companies.
Sources: Alice Schroeder, The Snowball, Ch. 2 and Ch. 60; HBO documentary Becoming Warren Buffett (2017); Berkshire 2013 shareholder letter.Buffett has been cast for decades as the Oracle of Omaha, a kind of secular saint. The biographers record three undervalued shadows.
The succession affair. In 2011, David Sokol — chairman of NetJets and MidAmerican Energy and the presumed heir apparent — was revealed to have bought $10 million of Lubrizol stock shortly before recommending that Berkshire acquire the company, netting roughly $3 million in personal gain. Buffett's initial public statement was strikingly mild and was widely read as protective. It took another two weeks, at the annual meeting, before he denounced Sokol in unambiguous terms. The hesitation made people reconsider how absolute his "honesty first" principle really was when applied to an insider.
Distance from family. Schroeder, with rare candor, records that Buffett's total devotion to work drove his first wife, Susie, to leave for San Francisco in 1977. Susie then arranged for her friend Astrid Menks to look after Warren, and the three maintained an open but unusual arrangement until Susie's death in 2004. Susie Jr., interviewed years later, told Schroeder: "Emotionally my father is an introverted genius. He loves us, but he doesn't quite know how to show it."
The "different kind of capitalism" critique. Buffett has long called for higher taxes on the rich (the so-called "Buffett Rule"). At the same time, Berkshire returns capital almost entirely through share appreciation rather than dividends, allowing Buffett to defer most taxation indefinitely. ProPublica's 2021 reporting on leaked IRS files showed his effective tax rate well below what he publicly advocates. This is not necessarily hypocrisy; it is a reminder that even the most public figures live inside structural contradictions.
The lesson: the saint narrative is dangerous. A truly great person comes with shadows attached. You cannot understand the light unless you understand the shadow.
Sources: Alice Schroeder, The Snowball, Ch. 40–45 (Susie); Berkshire 2011 shareholder letter (Sokol); ProPublica, "The Secret IRS Files," June 2021.Buffett spent sixty years proving that the real obstacle to compounding is not strategy but character. Put yourself in his shoes that day in 1964: you are already wealthy and respected, and an old man has just "insulted" you over twelve and a half cents. Do you fight to win the round (and buy out Berkshire), or do you walk away? The deeper question: in your own life, how many of your decisions are actually scoring points on the inner scorecard — and how many are quietly tallying on the outer one?
Warren Buffett's edge is not intelligence — it is temperament compounding over decades. He bought Berkshire Hathaway in 1965 out of spite over a 12.5-cent disagreement, then turned that mistake into a $700-billion compounding machine. His secret weapon, taken from his father, is the "Inner Scorecard": do you measure yourself by how the world sees you, or by how you see yourself?
Yet behind the saintly image lies a man whose absolute focus on work drove his first wife to leave; who hesitated when his protégé Sokol crossed an ethical line; who preaches tax fairness while structuring his own wealth to avoid it. The lesson is not to mock the contradictions — but to see that every great life carries its own shadow, and pretending otherwise robs us of the real teaching.